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Thursday, December 15, 2005

Congress Examines Peak Oil

One of the topics to which I've devoted considerable space in this blog in the last two years is that of an imminent peak in oil production. This idea has emerged from a technical argument in the journals of the industry to become a topic of considerable interest to the general public, particularly to those concerned about our future supplies of energy. The percolation of this notion has finally reached the top, with a recent Congressional hearing devoted to the subject.

On December 7 (unintentional irony?) the Energy and Air Quality subcommittee of the House Committee on Energy and Commerce heard testimony from two panels, including a presentation by a senior representative of Cambridge Energy Research Associates (CERA). As I've mentioned previously, CERA's detailed analysis of oil projects under development or in planning stages indicates that production will continue to grow to meet--or exceed--demand. That means no peak within the project planning horizon of the energy industry, going out 15 to 20 years. However, I don't anticipate that these figures--even if they prove entirely accurate--will dispel concerns about Peak Oil. The Peak Oil meme is uniquely suited for the times in which we live, which one of the New York Times' regular op-ed contributors recently referred to as an Age of Skepticism.

The combination of the Iraq War, the Enron scandal, and Shell's reserve accounting snafu last year sets the stage for deep skepticism about any analysis suggesting that running short of oil needn't concern us for a generation. After all, it's been a fundamental assumption since the 1970s that oil was finite and would run out, possibly within the lifetime of the Baby Boomers. But it's also worth noting that some of the production streams deferring a peak in oil production are pretty unconventional, at least by 1970s standards. Without the contribution from oil sands and heavy oil, ultra-deepwater drilling, and the liquids associated with higher global natural gas production, we would be in deep trouble very soon.

Personally, I remain skeptical about the Peak Oil theory, worrying less about the Hubbert Curve than about the "above-ground risk" issues to which CERA alluded. These encompass all of the things--strikes, hurricanes, coups, terrorist attacks, and changes in contractual terms--that happen in the real world to keep oil in the ground from being delivered to customers. Add to this the inevitable and worrying enhancement of OPEC's market power implicit in CERA's projections, and we ought to have all the incentive anyone would need to diversify our energy sources to include more natural gas, renewable energy, and nuclear power.